Bahrain will use a public-private partnership to build $550 million in affordable housing, the first deal of its kind in the GCC.
Bahrain signs record public housing deal
The Bahraini government has signed a US$550 million (Dh2.02 billion) public-private partnership to build housing in the kingdom in the first deal of its kind in the GCC.
Under terms of the agreement, Naseej, a developer based in Bahrain, will build a total of 4,100 homes in Northern City, Al Buhair and Al Lawzi. Of those homes, 3,110 will be taken over by the government for social housing.
More than 55,000 people in Bahrain are on a waiting list for social housing, which became a hot topic in the country last year.
"It's been in the pipeline for quite some time," said Kristian Syson, the head of professional services for the Bahrain office of the international property consultancy Cluttons. "Given the recent political [unrest], it is something that had to happen sooner or later."
The agreement is the biggest of its kind in Bahrain's history, said Basim bin Yacob Al Hamer, the housing minister.
The government plans to explore more public-private partnership (PPP) deals to speed the development of housing projects, he said.
PPPs are commonly used for infrastructure projects such as roads and airports, with the private sector providing financing and construction expertise in exchange for steady revenue from the completed projects.
But the funding method has rarely been used for housing projects, which are typically built with direct financing by developers.
"It is an expensive route," said Mike Williams, the senior director of CB Richard Ellis for the Middle East.
"It's more expensive than doing it directly."
PPPs provide a number of advantages for affordable housing schemes, including cutting the government's upfront costs. The government can also provide the land, which eliminates a major cost hurdle for developers.
Morocco is the only country in the Middle East and North Africa region to successfully use PPP to drive construction of affordable housing, according to a recent study by the property services company Jones Lang LaSalle. Developers have been offered subsidised land and tax breaks to spur interest.
In Bahrain, developers have typically focused on luxury projects, even though 86 per cent of the population earns less than 400 Bahraini dinars (Dh3,896) per month, according to Jones Lang LaSalle.
"In order to provide the number of properties that need to be provided [in Bahrain], something different had to be looked at," Mr Syson said.
Bahrain has been working on the PPP agreement for more than a year. The deal with Naseej calls for the government to provide the land and basic infrastructure, according to a source familiar with the details who did not wish to be identified.
The government will also purchase the 3,110 homes designated for social housing. Naseej would then sell the remaining 990 apartments and villas at affordable pricing levels.
The financial arrangements for the deal are expected to be completed by April. Naseej plans to fund the project using 30 per cent equity and 70 per cent debt.
A consortium has been developed to build the project, including Ithmaar Development Company as project manager and Aecom as the master planner.
The challenge will be to develop homes that are not only affordable but also appealing to Bahraini buyers, analysts say. Some housing projects in the past have faltered by not delivering the type of villas preferred by buyers, or by offering properties that were too expensive for the market.
"There is a shortage of affordable property that … people actually want," Mr Syson said. "In order to make these projects affordable to build for developers and end-users to buy, different construction methods will have to be looked at."
If the model is successful, it could spark more PPP housing deals around the region.
"Having been through that process once, hopefully it will make it easier to go through that process again," Mr Williams said.